Citigroup: Global interest rate cuts support moderate economic growth, with China's growth rate expected to be around 5% next year

Recently, during the Citi China Summit 2025, several economists from Citi analyzed their views on the current global and domestic macroeconomic trends.

Nathan Sheet, global chief economist of Citi, said that the global economy has shown more robustness than expected. "The tone of the autumn meetings of the IMF and the World Bank was unexpected. The global economic growth rate this year is expected to be around 2.7%, which is slightly lower than last year's trend growth rates of 2.8% and 3%, but still within a reasonable range.".

Behind this performance is the continuous decline in global inflation - the current overall global inflation rate has fallen to the pre-pandemic level of 2%, and core inflation, although slightly higher, remains moderate.

Tariff policy has become a key variable influencing the global trade pattern.

Nathan Sheet pointed out that the average tariff rate on US imports has soared from 2.5% at the beginning of the year to about 15%, "reaching its highest level since the 1930s". Trade flows have been restructured accordingly: the share of US imports from China has fallen from 13% to 8% over the past year, while trade shares with Taiwan, China (focusing on AI and semiconductors), Vietnam, Mexico, and Thailand have significantly increased. Among them, the United States-Mexico-Canada Agreement (USMCA) is expected to be renewed next year, further consolidating Mexico's competitive advantage.

In terms of monetary policy, the world is entering a period of interest rate cuts.

Nathan Sheet revealed that "about 25 of the 30 major central banks have implemented interest rate cuts this year, with only two raising rates," and the trend of interest rate cuts will continue next year in response to the impact of tariffs and improved inflation. Specifically, due to the weak labor market, the Federal Reserve is expected to cut interest rates several more times by the end of next year; the European Central Bank will cut interest rates twice more, with the deposit rate falling to 1.5%; while the Bank of Japan, with inflation firmly around its 2% target, will raise interest rates twice by 100 basis points next year.

Lucy Baldwin, head of Citi's global research team, has identified a new global phenomenon known as "jobless prosperity".

"GDP growth is robust and resilient, yet employment data in the US and certain parts of the world remains weak." She explained that the job market is highly sensitive to interest rates. The Federal Reserve's continuous interest rate cuts will improve the employment situation in industries under pressure from high interest rates. However, the impact of artificial intelligence on middle and low-level jobs has already become apparent. "Citi's research indicates that middle and low-level jobs face greater challenges, and graduates in many parts of the world are struggling to find employment." In the long run, the impact of AI on employment remains a key challenge that policymakers need to address.

Regarding the gold trend that the market is concerned about, Lucy Baldwin believes that the currency depreciation trade has essentially come to an end. "Gold prices have risen by 50% this year, and the cumulative increase over the past two years has exceeded 100%. There are short-term downside risks," but in the long run, it still has support - central banks' gold purchases, ETF inflows, and the interest rate cut cycle will be positive. The status of the US dollar as the global reserve currency is still difficult to shake in the short term, despite the emergence of challenging factors.

Xiangrong Yu, Chief Economist of Citi for Greater China, compared the "Suggestions" on the 14th Five-Year Plan adopted at the Fourth Plenary Session to a "newscript" for China's economy.

He stated, "The core narrative revolves around technological self-reliance and the rebalancing of supply and demand, emphasizing the development of new productive forces. Simultaneously, pragmatic measures such as building a nationwide market and increasing the consumption rate of residents are taken to advance economic rebalancing, directly addressing market concerns.".

In terms of growth expectations, Yu Xiangrong holds a constructive view towards China's economy: "GDP has grown by 5.2% in the first three quarters, and the growth target of 5% for this year is likely to be achieved." As the first year of the 14th Five-Year Plan, he predicts that the growth target for 2026 will remain "around 5%", with a baseline forecast of 4.7%, "and favorable factors such as the conclusion of a phased trade agreement between China and the United States are increasing.".

In terms of policy, Yu Xiangrong predicts that a pattern of "fiscal dominance and moderate monetary easing" will emerge.

"Under multiple constraints, it is difficult to implement a broad stimulus. It is expected that interest rates will be cut by 20 basis points and the required reserve ratio will be reduced by 50 basis points in 2026, mainly serving as a signal," he explained. The current policy interest rate of 1.4% and effective reserve ratio of 6.2% are already at a low level. The inversion between bank net interest margins and non-performing loan ratios has restricted the room for monetary policy.

Fiscal policy will continue to be implemented with sustained strength. The deficit ratio of the general public budget is expected to be 4%, with a quota of 1.6 trillion yuan for ultra-long-term special treasury bonds and 4.9 trillion yuan for local government special bonds, of which 4.1 trillion yuan will support economic growth. The scale of the generalized fiscal deficit will reach 11.8 trillion yuan, accounting for 7.9% of GDP.